Location: Montgomery County, MO | Metro: St. Louis, MO-IL HUD Metro FMR Area
| Unit Size | Monthly FMR |
|---|---|
| Studio | $810 |
| 1 Bedroom | $820 |
| 2 Bedrooms | $1,070 |
| 3 Bedrooms | $1,480 |
| 4 Bedrooms | $1,560 |
| 5 Bedrooms | $1,810 |
| 6 Bedrooms | $2,027 |
| 7 Bedrooms | $2,189 |
| 8 Bedrooms | $2,298 |
U.S. Census Bureau data (2024)
The analysis of the Section 8 cap rate scenario for ZIP code 63333 reveals an interesting contrast between federally mandated Fair Market Rents (FMRs) and actual market rents. For a two-bedroom property, the annualized FMR for fiscal year 2024 is set at $920 per month, while the Census ACS reports the average market rent at $775 per month.
To derive the gross yield, we must first understand that the cap rate is calculated as the net operating income (NOI) divided by the property's value. However, since the median home value for ZIP 63333 is not available, we will focus on the rental income side of the equation. The gross yield can be thought of as the ratio of the annual rental income to the property's value. In the absence of a median home value, we will compare the gross yields based on the FMR and market rent figures.
The gross yield using the FMR would be higher, at approximately $11,040 annually ($920 x 12 months), compared to the gross yield based on market rent, which stands at $9,300 annually ($775 x 12 months). This implies a higher potential income if landlords were to participate in the Section 8 program, assuming they can find tenants willing to pay the higher rate.
However, given the low renter density of 16.0%, it is important to consider how many properties are actually rented out versus owned. A lower renter density suggests fewer units are likely to be rented, which could impact the feasibility of relying solely on rental income. Additionally, the lack of data regarding the Days on Market (DOM) makes it difficult to assess how quickly a property might be rented out under the Section 8 program. Despite these limitations, the higher gross yield based on FMRs indicates a potentially more lucrative option for landlords willing to navigate the complexities of the Section 8 program.
In conclusion, while the Section 8 program offers a higher gross yield at $11,040 annually, the reality of lower renter density and unknown market conditions means that landlords should carefully weigh the benefits against the potential challenges. The market rent scenario, at $9,300 annually, represents a more stable but less profitable option for those who prefer simplicity over increased income.
Data Sources: FMR data from HUD (2027). Demographics from U.S. Census (2024).
About FMR: Fair Market Rent (FMR) is used to determine payment standards for the Section 8 Housing Choice Voucher program, initial renewal rents for some expiring project-based Section 8 contracts, and rent ceilings for HOME Investment Partnerships.